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2011 State of the Union Analysis


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On January 25, 2011, President Barack Obama delivered his second State of the Union Address. Patton Boggs has provided a full analysis of his speech.

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2011 State of the Union Analysis

  1. 1. President Obama and the 112th Congress The State of the Union January 26, 2011© 2011 Patton Boggs LLP. All rights reserved.Consistent with fair use, this report may be quoted or reproduced in part without the express prior written consent of Patton Boggs LLP.
  2. 2. “[The President] shall from time to time give to the CongressInformation of the State of the Union, and recommend totheir Consideration such Measures as he shall judgenecessary and expedient;” Article 2, Section 3 U.S. Constitution5145140
  3. 3. Introduction “There are no second acts in American lives.” --F. Scott Fitzgerald On January 26, 1982, President Ronald Reagan appeared before the 97th Congress togive his first State of the Union Address. With the prime rate of interest having reached an all-time high (21.5%) shortly after the 1980 election and the unemployment rate having reached8.6% by the time he addressed Congress, his approval rating had fallen to 47%. PresidentReagan’s popularity--and apparent reelection prospects--declined even further over the ensuingyear. By the time he delivered his second State of the Union Address on January 25, 1983,unemployment had risen to 10.4% and his approval rating had fallen to 35%. Less than threemonths earlier, Reagan’s GOP had weathered sharp losses at the ballot box--Republicanssuffered a net loss of 26 House seats and 7 governorships in the 1982 mid-term elections. Last year, when President Barack Obama gave his first State of the Union Address,unemployment was running at approximately 10%. His approval rating, which stood at 67% onInauguration Day, had by then sunk to 48% (comparable to President Reagan’s at the samepoint in his first term). In that address, President Obama declared that “jobs must be our numberone focus in 2010.” But then the Administration spent the bulk of the year on financial servicesreform and other issues, including health care reform, which the President signed into law inMarch. Just as President Reagan’s political party suffered significant mid-term election set-backs, President Obama’s party suffered--in his words--a “shellacking” at the ballot box. In theview of voters, jobs were indeed number one. Today, with the unemployment rate remaining stubbornly high at 9.4%, the publiccontinues to be pessimistic about the health of the economy. Not since the Great Depressionhas the unemployment rate remained above 9% for 20 straight months. Counting thoseindividuals who are seeking full-time employment while working part-time jobs and those whohave dropped out of the labor market altogether, the current unemployment rate is nearly 17%.Nonetheless, approximately 53% of Americans now approve of President Obama’s jobperformance, a marked increase from his all-time low approval rating of 41% just a few weeksbefore the mid-term elections. He now enjoys a significantly higher approval rating thanPresident Reagan at the same point in his presidency. Undoubtedly, President Obama’sdecision to work with Republicans to extend the Bush-era tax rates and his uplifting speech oncivility in Tucson have helped boost his approval rating, which has increased eight points justsince December. Perhaps even more significantly, since the election polls have shown a 15%upward swing in his direction among independent voters. 15145140
  4. 4. It may be said that there are no second acts in American lives, but Presidents have away of confounding the pundits. Consider this: in March 1982, the Associated Press wasreporting that “[m]ost Americans are turning against President Reagan because of concernsabout the economy and hope he does not seek a second term.” At about the same time, in aneditorial entitled “Captain Reagan and the Icebergs,” the New York Times editorial board soughtto put it all in perspective: Pain is being felt around the country, even as the impression mounts that Mr. Reagan has a vision but not a program. Even ignoring the economic iceberg, the political iceberg lies dead ahead. Republicans are scrambling for ways to put daylight between themselves and their President. Democrats are groping for ways to let him sink without taking the country down, too. Well, that movie had a different ending. President Reagan was re-elected in a landslide.Second acts are indeed possible in American lives. Will that plot line emerge again? Less than three months ago, talking heads had writtenoff President Obama. At the end of October, his approval rating had sunk to an all-time low of41%. In the mid-term elections, Democrats lost a net 63 House seats and six Senate seats. ThePresident got the message. He decided to move towards the center, at the risk of alienating hiscore base in the Democratic party and on Capitol Hill. Like President Bill Clinton before him, President Obama has already embraced“triangulation” (positioning himself between the extremes of both parties). President Clintoneventually dropped his more ambitious and controversial plans, such as health care reform, andinstead worked with Republicans over the second two years of his first term on a more modestlegislative agenda that appealed to middle-class Americans. In addition to building policyinitiatives around a strategy of triangulation (e.g., welfare reform), President Clinton adoptedthree tactics that may soon look very familiar: (1) he adopted a more fiscally conservative tone,message, and proposals; (2) he sought to achieve consensus on “small-ball” bipartisanlegislative proposals that connected with the American public (e.g., school uniforms) rather thancomplex and controversial measures (e.g., healthcare); and (3) he used his Executive power toimplement other elements of his agenda through Executive Orders and regulations (e.g.,firearms control) when he could not get Congress to act. He then cruised to reelection in 1996. The first manifestation of the President’s embrace of a comparable strategy, beginningwith triangulation, came during the surprisingly productive lame-duck session in December,during which the President brokered a bipartisan compromise to extend the Bush-era tax ratesand enact tax relief for businesses and individuals to help encourage job growth by stimulatingthe economy. With the support of the Republican establishment, he secured ratification of theNew START Treaty. And in a move significant to his base, he persuaded Congress to repeal themilitary’s “don’t ask, don’t tell” policy. He then gave a powerful speech in Tucson--watched by 25145140
  5. 5. 31 million Americans--that resonated with Republicans, Democrats, and Independents,including many who had abandoned him and his party in the November mid-term elections. Now that the American public is giving the President a second chance, can he keepthem moving in his direction? And will the economy give him enough breathing room tosucceed? As he confronts a new Congress and focuses on the 2012 election, President Obama isusing the power of the presidency to woo independent and moderate voters and to deny HouseRepublicans the opportunity to define the agenda for the coming year. Two weeks ago, thePresident penned a Wall Street Journal op-ed in which he touted an executive order that would“root out regulations that . . . are not worth the cost, or are just plain dumb.” Last week, as partof an initiative to engage with the business community, he named General Electric CEO JeffreyImmelt to head a new economic advisory panel, the Council on Jobs and Competitiveness. Lastnight, he made it clear that the next two years will be all about jobs, jobs, jobs. None of hisinitiatives may bring down a seemingly stubborn high unemployment rate, but they nonethelesssignal to independent voters in particular that he got the message they sent on November 2. Last night, President Obama addressed Congress for the first time since Republicanswrested control of the House from Democrats and weakened the Democratic party’s majority inthe Senate. Aware that American voters are increasingly intolerant of failure and with an eye onhis own reelection in 2012, President Obama will pursue an ambitious agenda. Like PresidentReagan, he understood well the power of the moment last night in addressing the nation, callingfor shared responsibility in governing and referring to this time as “our generations Sputnikmoment.” As he challenged the country to “win the future,” he reminded the American publicthat as a nation “[w]e do big things.” As he now moves forward with his new agenda, can hereplicate President Reagan’s success? Some context. President Reagan’s popularity returned when the economy started toimprove, not just because he spoke optimistically about the future and effectively usedsymbolism to further convey a sense that things would get better and that the American publicwould do better. He also did a masterful job of using the Soviet Union as a foil, not just forforeign policy reasons, but also as a means of drawing a more positive picture of and for theAmerican people (“Mr. Gorbachev, tear down this wall.”). Likewise, President Obama is capable of using lofty rhetoric and symbolic moves toconvey a sense that things will get better. Consider, for example, the way in which he framedthe Sputnik reference: “Half a century ago, when the Soviets beat us into space with the launchof a satellite called Sputnik¸ we had no idea how we’d beat them to the moon. The sciencewasn’t there yet. NASA didn’t even exist. But after investing in better research and education,we didn’t just surpass the Soviets; we unleashed a wave of innovation that created newindustries and millions of new jobs.” 35145140
  6. 6. The President will continue to strike a note of optimism, but will the economy provideenough of a boost by the summer of 2012 to give the American public confidence in the futureor will they be more concerned about too many family members and neighbors who still can’tfind work? To address their concerns, can he identify any additional measures to stimulate theeconomy, knowing the Republicans are done agreeing to “stimulus” legislation? As more jobentrants come into the market each month, the economy needs to create 100,000 jobs--just tomaintain the status quo. Moreover, there appear to be larger forces at work limiting job growth.For reasons economists still can’t fully explain, the U.S. economy has failed to produce the jobsthat would have been expected over the past decade. In fact, as a result of the recession, thecountry has lost the equivalent of every job created since the beginning of 2000. According to arecent report, the U.S. economy entered 2010 with 15 million fewer jobs than anticipated at thebeginning of the decade. Job creation is now lagging more so than at any time of economicexpansion since World War II. Given the larger forces at work, the President may be limited in what he can do to turnthings around in a way that creates substantial job growth in the near term. And he may nothave a comparable international foil against which to wage battle. But he still has the power ofthe presidency, which in recent weeks has been put to maximum use. Beyond what he can do personally to re-connect with voters, the President needs to helpthem understand how the world is changing as China’s economic power continues to grow andthe dollar is threatened as a reserve currency for the world. And he has to instill confidence thatthings are getting better, that momentum is on our side. Creating jobs through green energyinitiatives, for example, may provide a way to demonstrate that good days still lie ahead, that theUnited States still can make things in factories by people who have good-paying jobs, but only ifthe United States seizes the initiative. It was thus no coincidence that he visited a GE plant toreaffirm his commitment to creating jobs through exports, such as renewable technology goodsdestined for China. Or that he went out of his way last night to emphasize the extent to whichChina and India are seeking to reshape the future. As they face a re-energized President, the Republican leadership is facing the challengeof setting a legislative agenda that will appeal to faithful Republican voters without alienating thesame independent voters that President Obama is now courting. Passing legislation in theHouse to repeal the new health care law was easy. Now the hard part begins, as Republicansfocus on the “replace” part of their “repeal and replace” health care agenda—an effort likely tocontinue for the better part of the coming year. But the more pressing issue that will face theHouse Republican leadership in particular will be triggered by the need to raise the debt ceilingin order to ensure that the federal government does not default on its obligations. The Republican leadership understands the challenge. As they focus on deficitreduction, they want to drive the debate about the size of government, at both the federal andstate level. Aware of the challenge, the President will focus on what government does right and 45145140
  7. 7. why further investments are warranted. Both agree that government can do more with less. Butwhen you get down to details, one person’s stuffed pork is another’s sacred cow. The issue iswho can best frame the subject for the American public. In the Republican response to the President’s address last night, House BudgetCommittee Chairman Paul Ryan (R-WI) emphasized the importance of creating jobs whilereducing the deficit. He made it clear that Republicans are willing to work with the President. Buthe left little doubt about the challenges of finding common ground in doing so: “Whether sold as‘stimulus’ or repackaged as ‘investment,’ their actions show they want a federal government thatcontrols too much; taxes too much; and spends too much in order to do too much. And duringthe last two years, that is exactly what we have gotten--along with record deficits and debt--tothe point where the President is now urging Congress to increase the debt limit. We believe thedays of business as usual must come to an end. We hold to a couple of simple convictions:Endless borrowing is not a strategy; spending cuts have to come first.” Where do the President and 112th Congress go from here? We share below ourthoughts with respect to deficit reduction and raising the debt ceiling, tax reform, energy policy,and trade policy. Major Legislative and Regulatory InitiativesDeficit Reduction As of today, the nation’s debt is growing at a rate not seen since 1792 (except duringWorld War II), when official record keeping began. In the past decade, it has increased from$3.5 trillion to more than $14 trillion. During this period, the ratio of debt to gross domesticproduct has doubled. But it gets worse. In the absence of something dramatic, theCongressional Budget Office has projected that the ratio of debt to gross domestic product willhit 90 percent by 2020. It could be even worse. The International Monetary Fund has projectedthe ratio will hit 115% by 2020. Hence the desire of the President and Congress to dosomething significant to address this rapidly growing crisis, and soon. Last night, the President indicated that he wants to work with Congress to address thefiscal deficit, beginning today. He challenged Congress to enact a five-year budget freeze and toeliminate all earmarks, saying he would veto any bill with earmarks that reached his desk.Within the overall limits that would be established under a new budget, the President wouldinvest more for innovation, education, broadband deployment, and infrastructure, including high-speed rail. 55145140
  8. 8. The President will have a more than a willing partner in the Republican-controlled Housein reducing the deficit, but it remains unclear how effective this partnership will be. HouseRepublicans are intent on cutting spending, but they disagree on where many cuts should bemade. Yesterday, as a first step, the House went on record in support of a measure calling onthe Budget Committee to report a budget resolution that would reduce non-security spending forfiscal year 2011 to fiscal year 2008 levels or lower. And although it is far from clear that theSenate would support the House-passed bill, the cutting proposed by House Republicans is notlikely to end there. Republicans are likely to go in a direction unacceptable, at least initially, tothe President. For example, on January 20, the conservative House Republican StudyCommittee unveiled a package of proposed spending cuts that goes well beyond what thePresident proposed last night, cuts projected to save $2.5 trillion over ten years, including cutsof $80 billion for the current fiscal year. (Senator Jim DeMint (R-SC), Chairman of the SenateSteering Committee, endorsed the proposal as well.) Under the Study Committee’s ten-year plan, virtually all of the savings would be realizedby reducing discretionary spending, including rolling back non-defense spending to fiscal year2006 levels starting in fiscal year 2012, which is projected to save $2.29 trillion through fiscalyear 2021. The proposal, for example, would “zero out” over three dozen entities or programs,including funding for Amtrak, the Legal Services Corporation, the Corporation for PublicBroadcasting, the National Endowment for the Arts and for the Humanities, and the Agency forInternational Development, as well as the essential air service program, “new start” transitprograms, a popular weatherization program, and even capital and preventative maintenancefor the subway system that serves Washington, DC. In addition, the proposed legislation wouldprohibit any fiscal year 2011 funding from being used to carry out any of the provisions in thehealth care law and would even bar the Administration from defending the law in court. Theproposal also would end automatic pay increases for civilian federal workers for five years,would cut the workforce by 15% through attrition, and would authorize the hiring of only one newworker for every two workers who leave federal employment. Those kinds of cuts will likely appeal to Tea Party activists and the base of theRepublican party, but will likely be of concern to independent voters and undoubtedly will beopposed by core Democratic constituencies. We cannot imagine the Senate agreeing toanything comparable, even if the proposed legislation makes it out of the House. And thePresident will no doubt pick apart the plan to show independent voters that their interests are atrisk if deficit reduction becomes an end in itself. By this spring, the battle will be fully joined when Congress and the President engageover increasing the debt limit. Based on current projections, the government will hit the $14.294trillion statutory debt limit as early as March 31. Depending on tax receipts and economicgrowth, the Treasury Department has projected that the limit might not be reached until May 16.The Department has several tools that would allow it to manage cash flow in a way that would 65145140
  9. 9. push back the day of reckoning until mid-July, such as drawing down on a $200 billion fund atthe Federal Reserve that was created to finance emergency lending. But it cannot paper overthe problem forever. With the House Republican leadership having indicated that they are prepared to raisethe debt limit in return for significant budget cuts, the day of reckoning approaches. Theyunderstand the risks of roiling the credit markets and bringing back memories of the governmentshutdown in 1995. But they also face the challenge of an energized base that simply wants tocut the size of government, and substantially. And Members who insist they were sent toWashington to cut the deficit and will not compromise. Period. Having not been in the House in1995, some freshmen that make up part of their caucus may not fully appreciate the power ofthe presidency to shape a narrative that will appeal to independent and moderate voters. Willthey provide this President with a similar opening? Like President Clinton, President Obama may need to confront Republicans before hecooperates with them. For President Clinton, welfare reform came nearly a year after theconfrontation over shutting down the government. If the Republicans were to go too far in theirefforts to reduce spending as the price of agreeing to raise the debt ceiling, they might providethe President with just such an opening.Tax Reform “The tax code is 10 times the size of the Bible, with none of the good news.” --House Ways and Means Committee Chairman Dave Camp (R-MI) Comprehensive reform of the corporate tax code is now squarely on the congressionalagenda. Recent comments from the Obama Administration and the Democratic leadership hadsignaled a new receptiveness to measures that would combine a reduction in the current 35%corporate rate (one of the highest in the industrialized world) with targeted, revenue-raisingreforms. Last night, as expected, President Obama more formally endorsed the notion thatcorporate tax reform is necessary to make U.S. businesses operating in a global economy morecompetitive with their foreign counterparts. This is a marked change of tone from just two yearsago, when the President proposed raising taxes significantly on U.S.-based multinationals,which he accused of taking advantage of tax “loopholes,” such as deferral, in order to “export”jobs overseas. Last night, he proposed tax increases only for the energy industry. Enactment of fundamental reform of the corporate tax code seems unlikely this year, butit is an area where the President and a Republican House could find substantial commonground before the 2012 elections. To be sure, it is one thing to agree in principle that reformshould be undertaken; it is quite another to agree on the details, especially since both sides 75145140
  10. 10. begin the debate miles apart. It will be important to see what specific items or placeholderPresident Obama includes in his budget request to Congress, expected in mid-February. Under the leadership of Chairman Camp, the House Ways and Means Committee lastweek initiated what will be the first in a series of oversight hearings on the need to addressaspects of the U.S. tax system that undermine the ability of American companies to operate inan increasingly competitive world market. While there is general agreement that the U.S. Codeis more complex and less efficient than systems used in other countries, industry-specific taxbreaks that have evolved since the last successful reform effort in 1986 have influential politicalconstituencies behind them. Thus, the principal challenge for the President and the tax writingcommittees will be reversing a two-decade old trend that has resulted in high rates and a narrowbase caused by excessive tax expenditures. Complicating things further is the threshold andpolitically divisive question of whether tax reforms should be revenue neutral, a positionsupported by Republicans, or should result in a net increase in federal tax revenues that willcontribute to an overall deficit-reduction plan, an approach favored by a majority of Democrats. Last December, the National Commission on Fiscal Responsibility and Reform releasedrecommendations on the individual side that would combine a reduction in the top individual taxrate to between 23 and 28 percent with significant reductions in what to date have been “sacredcows” on the tax expenditure side, namely, the mortgage interest deduction, state and local taxdeductions, charitable deductions, and employer-paid health premiums. Similarly, to achieve areduction in the corporate tax rate to a level of even 30 percent, the prospect of repealing, orscaling back, provisions considered vital to many companies--such as research and othercredits and deductions, deferral mechanisms for overseas profits, deductions for domesticmanufacturing activities, last-in/first-out accounting methods, and accelerated depreciation--willneed to be actively considered. At this stage, however, the business community has notindicated any willingness to make such concessions. While consensus on any one approach remains an elusive goal, mounting deficitpressures will continue to force the Administration and a closely divided Congress to consider abroad range of tax reform options. And similar to the 1986 overhaul, we anticipate that anyreform legislation ultimately considered by Congress will, at least for the next two years, occurwithin the structure of the current income-based system, as opposed to wholesale replacementof the Code with an alternative approach, such as a national retail sales tax, value-added tax, orconsumption tax. 85145140
  11. 11. Energy Policy In 2008, then-candidate Barack Obama made enactment of comprehensiveenergy/climate change legislation a core part of his campaign. With the 111th U.S. Congresshaving rejected the bulk of President Obama’s renewable energy agenda, the commonperception is that the 112th Congress won’t agree to any part of it in 2011. We have a differentperspective. We think the President can achieve much of his renewable energy agenda, but only if hereaches out to the new Republican majority in the House and works with moderates in theSenate. As a prelude of things to come, the President began talking shortly after the mid-termelections about trying to enact smaller, discrete elements of his broader renewable energyagenda. Last night, he provided more details about his revamped priorities. For example, heagain called on Congress to support legislation that would put one million electric vehicles onthe road by 2015--making the United States the first country to achieve that goal. And ratherthan asking Congress to adopt a comprehensive climate change bill, he instead urged it toenact legislation that would increase to 80% the percentage of electricity generated from cleanenergy sources by 2035. We believe he will be able to enact much of his renewable energyagenda. Coupled with new transmission siting authority for power lines, a clean electricitystandard, measures to promote clean coal, nuclear energy, natural gas, and propane, andperhaps a new financing mechanism to encourage additional renewable energy development, agood bill could be enacted into law with strong, bipartisan support. That the 111th Congress could not agree upon a comprehensive climate change billshould not have surprised the White House and its allies in the environmental community. In thelast decade, Congress has passed only two comprehensive pieces of energy and environmentallegislation and then only after lengthy committee deliberation and months of consideration onthe Senate floor. In addition, there was real bipartisanship in developing those bills, even withdivided government. Finally, the economy wasn’t reeling at the time, and thus Congress hadmore flexibility in drafting legislation with a broad impact on many sectors of the economy. ThePresident and the 112th Congress now have a chance to replicate those achievements. With many electric utilities seeking greater certainty about what the future holds,Republicans have been presented with an opening to co-opt the legislative high-ground fromDemocrats by making the “business case” for a bill that would address climate change, grow theeconomy, and provide dividends to the American public. Any bill would be less ambitious thanthe “Waxman-Markey” bill that the House adopted in 2009. The legislation would likely allow theprivate sector to determine the best technologies to meet any new emission caps or standards.And to avoid the charge that consumers are being forced to bear the brunt of the cost ofreducing greenhouse gas (GHG) emissions, the bill could refund directly back to consumers allor most of the proceeds from allowance auctions/sales. Finally, any such bill would likelypreempt the Environmental Protection Agency (EPA) from moving forward on other GHG- 95145140
  12. 12. related regulations and would likely block as well state and regional GHG systems (e.g.. AB 32in California). We believe that regulation of GHG emissions is inevitable; the only question is what formit will take. Rather than allow the EPA to create its own regulatory structure, the 112th Congressmight conclude that the time is right for a market-based approach as an alternative. Thus,perhaps ironically and contrary to conventional wisdom, we believe that the prospects forlegislation that would reduce GHG emissions have actually increased as a result of the shift to aRepublican majority in the House and Republican gains in the Senate. But before reaching thatpoint, Republicans (and Coal-State Democrats) in particular may seek to use the appropriationsprocess or use other approaches, such as the Congressional Review Act, in an effort to blockthe EPA and force the debate to a different plane. Without action by Congress (or the courts), more proposed regulatory initiatives can beexpected as the President and his Administration seek to implement his renewable energyagenda. For that reason, Congress may seek to achieve business certainty through enactmentof legislation that provides flexibility and promotes economic growth. That kind of legislation--combined with other parts of the President’s renewable energy agenda--could mark a majoraccomplishment for the President and the new Congress.Trade Policy In last year’s State of the Union Address, President Obama set a goal of doubling U.S.exports within five years, which he projected would create two million jobs. Last night, heindicated that the country is now on a path that can reach that goal. But more needs to be doneto ensure that exports are increased as a result of policies at home rather than events abroad(such as China’s decision last year to let the yuan appreciate by 3%, which raised the relativeprice of Chinese exports and decreased the relative price of U.S. exports). With the President having now doubled down, 2011 will likely be a busy year for tradepolicy for both the Administration and the 112th Congress. The Administration will link passageof the three pending Free Trade Agreements--South Korea, Colombia, and Panama--withincreasing jobs here and helping to fulfill the President’s 2010 State of the Union objective ofdoubling U.S. exports. In addition to consideration of the three pending FTAs, likely beginningwith South Korea, we anticipate movement on extension of the Generalized System ofPreferences (GSP), the Andean Trade Preference and Drug Eradication Act (ATPDEA), andTrade Adjustment Assistance (TAA), progress on the Trans Pacific Partnership (TPP), andpossible legislation related to Russia’s accession to the World Trade Organization (WTO). Free Trade Agreements. Although the Administration was unsuccessful in resolving alloutstanding issues with respect to the Korea-U.S. Free Trade Agreement at the G-20 Summit in 105145140
  13. 13. Seoul in November, the United States and South Korea in mid-December resolved most of theoutstanding issues (notably with respect to automobile trade). Notwithstanding some sentimenton the Hill to move all three FTAs as a package, we anticipate that the Administration will submitthe Korea package first, probably this spring. Although the beef issue is still unresolved,administration negotiators and congressional staff are finalizing the legal text for the autoprovision and the business community has already begun to initiate its outreach program insupport of the agreement. The Colombia agreement remains the most controversial, but stillshould be submitted later this year. The free trade agenda is rapidly moving to the fore in Congress, as Members arebecoming increasingly vocal about their desire to move legislation forward. Yesterday, forexample, the House Ways and Means Committee held a hearing to highlight the benefits of allthree pending FTAs. Chairman Camp called on Congress to consider all three agreements in“the next six months,” noting that “this deadline isn’t being driven by politics or posturing--it isdriven by the need to create jobs for American workers.” In the Senate, Senator Johanns (R-NE) and a bipartisan group of 11 additional Senatorsyesterday submitted a congressional resolution calling for passage of all three pending FTAs.Senate Finance Committee Chairman Max Baucus (D-MT) has called upon the U.S. andColombian Governments to resolve outstanding issues with the Colombia FTA, noting recentlythat “we have delayed action on the Colombia Free Trade Agreement for too long--now is thetime to resolve outstanding issues and approve the Free Trade Agreement so Americanranchers, farmers and workers can have a chance to compete.” China Trade Legislation. Last year, the House overwhelmingly approved legislationthat would allow the Department of Commerce to treat currency undervaluation as a“countervailable” subsidy under U.S. trade law. Although the legislation does not mention Chinaby name, it clearly targets China’s large foreign reserves that effectively tie the value of the yuanto the U.S. dollar. We expect the currency legislation to be a continued matter of interest forHouse Democrats, who may try as well to advance other China-related bills, such as legislationpertaining to indigenous immigration and matters related to the Strategic and EconomicDialogue. Extension of GSP, ATPDEA, and TAA. Early this year, Congress will also need toaddress renewal of several expiring trade programs, particularly ATPDEA, GSP, and TAA.During the lame duck session, the 111th Congress extended ATPDEA and TAA, but only for asix-week period, which expires in mid-February. The GSP program, which provides duty-freetreatment for imports from more than 130 developing countries, expired at the end of 2010.Without an “action forcing event,” we remain skeptical that Congress will act to renew theseprograms in the near term. But action by the end of the year is in the cards. 115145140
  14. 14. Trans-Pacific Partnership. In 2011, the U.S. Government will continue negotiations ona multilateral free trade area with nine Asian and Latin American Pacific Rim countries. TheAdministration has declared the TPP another key element of the President’s plan to double U.S.exports in five years. The negotiations aim to resolve concerns such as the interface betweenthe TPP and existing free trade agreements with member nations Singapore, Chili, Australia,and Peru, as well as the non-market economy status of Vietnam. Meanwhile, support fromcongressional leaders such as Senators John Kerry (D-MA) and Jim Webb (D-VA), who havepublicly supported the negotiations, will likely solidify the chance for U.S. participation in themultilateral agreement over the course of the 112th Congress. The stated deadline forcompleting the negotiations is the end of the year, which in our view seems unlikely to be met. Russia’s WTO Bid. With Presidents Obama and Medvedev having expressed a desirefor Russia to join the World Trade Organization, accession by the end of this year is likely--seventeen years after Russia first applied. The Russian Government has accomplished criticalsteps in the past few years, including completion of bilateral agreements with the United States,the European Union, and other WTO members. In order for the United States to benefit fullyfrom Russian membership in the WTO, however, Congress must repeal the Cold War-eraJackson Vanik law, which currently blocks normal trade relations between our two countries.The legislation was intended to curtail the then-Soviet Union’s reluctance to allow Jewishcitizens to emigrate to Israel in the 1970s, but it has remained in place as U.S.-Russian relationshave ebbed and flowed in the succeeding decades. *** As a firm with deep public policy roots, we are proud of our ability to help clients exercisea right enshrined in the U.S. Constitution by petitioning their government. We have been at itsince 1965, when Jim Patton encouraged a young White House aide named Tom Boggs to helphim build a different kind of law firm, one that understood that all three branches of governmentcould provide solutions to challenging problems. By combining political know-how, legislativeexperience, and substantive knowledge of the law, they had a vision for helping clients achievesuccess. For our paying and pro bono clients alike, we look forward to helping them achievetheir legislative objectives as President Obama engages with the 112th Congress. 125145140